Economics Homework Three Answers - Student Two

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Seth P.

1.Pizza is an example of a good that has a large price elasticity, meaning that a small decrease in price causes a big increase in demand.

Excellent, could use as a model answer.

2.An example of the concept of income elasticity is, if someone had a job making $7.50 an hour. Then if they get a promotion to $8 an hour they could buy more stuff or save that extra .50 for later. So income elasticity is if you get more money you have a choice to make.

Good answer, but not quite complete. Income elasticity is specific to a particularly good, like price elasticity. Income elasticity (of demand) is the change in demand for a particular good due to the change in income of the consumers of that good. (Minus 1).

3.A nearly perfectly elastic demand curve is nearly horizontal line in shape; a nearly perfectly inelastic demand curve is nearly vertical line in shape.

Correct.

4.A necessity is something you have to buy no matter what the price is because you can't live with out it like clothes, food, housing, gas. A luxery is stuff you can get but you don't really need. You can live without them, like video games, a beach front house, eating out.

Good, but incomplete. (Minus 1). There is a specific economic meaning for each: a necessity is a good that has an income elasticity (of demand) that is less than 1. A luxury (note spelling) is a good that has an income elasticity (of demand) of greater than 1.

5.At McDonald's a substitute for french fries would be apple fries. A compliment for french fries is a hamburger.

Superb, but note spelling: complement (with two "e"s), not "compliment".

6.A normal good is something that people buy more of when their income is high like steak. An inferior good is something people buy less of when their income is high like beans.

Correct, except rather than saying "income is high" say "income increases." It's the change in income, not its absolute value, that matters here.

7.A price ceiling that is set below the equilibrium price would cause a shortage, because the demand exceeds the supply. A price ceiling made the price really cheap so people are going to rush to buy. So the supply is going to run out way quicker than the demand.

Right, except note that making the price cheaper due to a price ceiling both reduces supply as well as increases demand. Be sure to realize the real reduction in supply that occurs, independent of the increase in demand. (Minus 1).

11.There are so many factors to minimum wage, it is pretty much impossible to say that it is a good thing or a bad thing because on one side its a good thing because the person that gets the job will have enough money to live on in some cases. Then again on the other hand, it's also bad because store owners can't hire as many people because they can't afford to give out that much money to employees. So it lessens the amount of jobs. So this is a hard subject and there is not any right answer or wrong answer. But in my opinion, minimum wage being a good thing or a bad thing depends on how old you are and what your living conditions are. So for someone like a teenager to young adult, it would be a great thing and make their life easier. But someone else like an older adult, would find it being not enough to live on. I guess my view on minimum wage is right now it would be a good thing for me and I like it but when I get older I'm not going to like it as much because I'm going to need more to live on.

Interesting discussion about the different perspectives based on age. Only two points deducted for lack of more economic analysis.
Good answers and overall high quality homework. Score: 67/70 + 38/40 = 105/110. Well done!

See Also

Economics Model Answers Three - 2013